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Utilities Win Big As Supreme Court Orders EPA To Consider Cost In Regs

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The utility industry won a critical -- but possibly short-lived -- victory as the U.S. Supreme Court ruled the Environmental Protection Agency must consider the costs of stringent regulations designed to eliminate mercury emissions from coal- and oil-fueled power plants.

Rejecting the Obama administration's arguments the EPA doesn't need to consider costs when it determines a utility pollutant must be regulated, Justice Antonin Scalia called that position unreasonable under the "appropriate and necessary" standard in the statute. By some estimates, the mercury regs cost more than $9 billion a year in order to create a $4-6 million a year in health and economic benefits.

“By EPA’s logic, someone could decide whether it is `appropriate’ to buy a Ferrari without thinking about cost, because he plans to think about cost later when deciding whether to upgrade the sound system,” Scalia wrote for a 5-4 majority.

Michigan v. EPA  was a challenge by the utility industry and 23 states whose electricity rates will likely go up if coal-fired power plants are shut down. The decision sends the Obama administration's regulations back to the D.C. Circuit Court of Appeals for another look. That same court will consider the administration's much more ambitious, and costly, Clean Power Plan to cut CO2 emissions from power plants, after rebuffing an industry challenge as premature earlier this month.

Depending upon how the D.C. Circuit rules in Michigan v. EPA, one of the utility industry's most powerful arguments against the CO2 regulations may become moot. If the appeals court throws out the mercury rule because the EPA failed to consider cost under Section 111(d) of the Clean Air Act, it may also undercut arguments the EPA can't regulate CO2 emissions under another section because they are effectively regulated through the mercury regs.

"Industry could lose by winning, depending on what the DC Circuit does," said Thomas Lorenzen, a partner with Crowell & Moring in Washington who until 2013 was a top Justice Dept. lawyer on environmental affairs.

The Supreme Court's decision today is narrowly written to apply only under the unique regulatory position of the fossil-fueled power industry. Congress wrote special provisions of the Clean Air Act to apply to power plants, and Scalia was careful to write the opinion in terms of those laws.

He also acknowledged so-called Chevron deference applies in this case, meaning federal agencies are still afforded wide latitude to interpret ambiguous terms in a statute as they see fit. (Justice Clarence Thomas wrote a concurrence agreeing with the outcome but urging the court to abandon the Chevron doctrine.)

But Scalia also picked away at Chevron a bit by holding the words "necessary and appropriate" weren't ambiguous enough to let the EPA read cost out of the equation. That could provide helpful to regulated industries in the future, said Lorenzen.

"It means that EPA can really no longer take any comfort in the fact there is a Chevron doctrine out there," he said. "The courts are going to look skeptically" at regulations that have a major effect on the economy, he said.

That was an undercurrent in last week's King v. Burwell decision upholding Obamacare subsidies, too. While Chief Justice John Roberts angered many conservatives by siding with the Obama administration for a second time on the Affordable Care Act, he also pointedly refused to apply Chevron deference, saying the fate of tens of billions of dollars in taxpayer-funded subsidies was a "question of deep `economic and political significance' that is central to this statutory scheme; had Congress wished to assign that question to an agency, it surely would have done so expressly."

Roberts dissented from Massachusetts v. EPA, the 2007 decision giving the EPA the power to regulate  CO2 under the Clean Air Act. Then, he said, the question of global warming and how to deal with it belongs in the legislative branch and not in the courts.

Justice Elena Kagan wrote a dissent in Michigan v. EPA, joined by Stephen Breyer, Ruth Bader Ginsburg, and Sonia Sotomayor. They agreed it would be unreasonable for the EPA to refuse to consider costs at all.

"But that is just not what happened here," Kagan wrote. "Over more than a decade, EPA took costs into account at multiple stages and through multiple means as it set emissions limits for power plants."

The U.S. Chamber, not surprisingly, cheered the ruling.

“Today’s decision underscores how important it is that unprecedented future EPA rules such as the Clean Power Plan, which also reaches beyond the agency’s statutory power, not be implemented until the courts determine their legality," the business organization said. "The mercury rule at issue today has already shut down dozens of power plants that provided affordable and reliable electricity. Our nation simply cannot afford to lose even more electricity generation at the hands of an out-of-control EPA.”

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